XLC holds the communication services sector of the S&P 500, created in 2018 when telecoms were combined with internet platforms, media and entertainment companies. Alphabet and Meta are the largest holdings and make up a large share of the fund, alongside companies such as Netflix, Disney, Verizon and AT&T. The mix is unusual: digital platforms are growth businesses that depend on advertising and are sensitive to the economic cycle, while telecoms are slower-growing, capital-intensive companies with high debt and steady cash flows. Because of the weights of Alphabet and Meta, performance is driven more by large internet platforms than by traditional media or telecom. Advertising revenue is cyclical, so the fund can be volatile when corporate marketing budgets are cut.
